What kind of companies move jobs back to the US?

Reshoring — moving manufacturing from far-flung global locations back to the US — has been a popular topic both in the general press and on this blog. What’s not to like about it? As long as manufacturing allows average humans without extreme degrees of education or super rare skills to make a decent wage, new employment opportunities in manufacturing are always going to create a buzz.

More than 80% of companies bringing work back to the U.S. have $200 million or less in sales, according to the Reshoring Initiative, a nonprofit that encourages companies to return production to the U.S. Many supply parts to bigger companies or, if they sell directly to consumers, are seeking to cut out lengthy supply chains from Asia.

But big companies have the resources and experience to hopscotch around the globe. It’s harder and riskier for small firms to do the same.

So for every General Electric moving appliance manufacturing back to Kentucky, you have lots of firms like Chesapeake Bay Candle dealing with much smaller product lines. To some extent this is not too surprising. Whether you are GE or Chesapeake Bay Candle, managing a long supply chain or navigating cultural differences is nontrivial. One of those firms, however, can much more easily absorb the cost of having in country staff or can resort to throwing around its sizable weight to get a good deal. Further, a multinational like GE can also have ambitions of growing in China that may not be a priority for a small player like Chesapeake Bay Candle.

While it is not surprising that smaller firms play a big role in reshoring, that is also a problem. Reshoring brings a number of challenges. A firm has to develop a domestic supply base and find adequately skilled workers. Again, those are a lot harder for a small firm. If GE commits to moving a product line back to the US, it can probably get a supplier to follow suit (or at least hold sufficient inventory locally) without too much arm twisting. Smaller firms have a much harder time of it. They may try twist arms but there is no guarantee that anyone will notice.

So for whom does reshoring make sense? The Journal piece gives examples of smallish firms that have run into trouble — either because of regulatory burden, labor issues or not being able to pass on higher costs to the market. Obviously some of these are tied into location choices. How hard it is to find an adequate number of workers depends on where you set up shop, for example.

The pricing issue I find more interesting. The company in question makes wooden cribs.

Stanley Furniture shifted production of cribs and other baby and youth furniture from factories in China to Robbinsville, N.C., its last remaining U.S. production site.

The move, four years ago, was a gamble that Americans would pay a hefty premium for U.S.-made baby gear. Its $800 to $900 cribs, marketed under the patriotic sounding Young America brand, were up against similar-looking imports selling for about half as much. …

Stanley didn’t scrimp on the effort. Micah Goldstein, chief operating officer and CFO at the 90-year-old High Point, N.C.-based firm, estimates the company spent $20 million—between the financial losses and $10 million for advanced machinery for the U.S. plant. One set of new machinery allowed the plant to do work once done by 42 workers with just nine employees.

Are cribs just commodities? Arguably, they are. Yes, you want something that looks nice in the nursery but that would come in after ease of use and safety. Further they differ from other pieces of furniture in that they have a limited usefulness. A nice dining room set can be used for over a decade but kids outgrow cribs. Given that, it is not surprising that new parents are a little price sensitive when it comes to buying one.

And that makes competing against cheap imports hard. I suspect that you can pack a lot of cribs into one shipping container so logistic costs are not that high. Further, the long lead time probably isn’t that much of an issue since demand is going to be driven primarily by demographics over general economic conditions (i.e., recession or not, if you are having a baby, you will want a crib). If there is a limited ability to compete on superior design on craftsmanship, then it is hard to see the rationale for bringing that work to a high wage location.